Blue Star Annual Report

BOARD OF DIRECTORS Ashok M Advani Executive Chairman CORPORATE MANAGEMENT Ashok M Advani Executive Chairman Suneel M Advani Vice Chairman & Managing Director Suneel M Advani Vice Chairman & Managing Director Satish Jamdar Managing Director Satish Jamdar Managing Director Vir S Advani Executive Director Vir S Advani Executive Director Shailesh Haribhakti Pradeep Mallick Gurdeep Singh Suresh N Talwar Avinash Pandit President – Electro Mechanical Projects Group B Thiagarajan President – Airconditioning & Refrigeration Products Group J M Bhambure

COMPANY SECRETARY Sangameshwar Iyer Executive Vice President – R&D and Technology Tojo Jose Executive Vice President- Human Resources & Administration BANKERS The Hongkong & Shanghai Banking Corporation Ltd State Bank of India Oriental Bank of Commerce The Royal Bank of Scotland BNP Paribas Manek Kalyaniwala Executive Vice President – Finance Arun Khorana Executive Vice President – Professional Electronics & Industrial Systems Division G Anandkumar Vice President – Plumbing Projects Division AUDITORS S R Batliboi & Associates R Aravindan

Vice President – Airconditioning Projects Division (South) Sujan Chatterjee Vice President – Corporate Finance & Accounts REGISTRARS & SHARE TRANSFER AGENTS Link Intime India Pvt Ltd C-13, Kantilal Maganlal Estate Pannalal Silk Mills Compound L B S Marg, Bhandup (West) Mumbai 400 078. Telephone: +91 22 2594 6970 Fax: +91 22 2594 6969 Email: rnt. [email protected] co. in Sumanta Chaudhuri Vice President – Electrical Projects Division R G Devnani Vice President – Thane, Wada, Dadra & Bharuch Plants C P Mukundan Menon Vice President – Room Airconditioners Division P Venkat Rao

Vice President – Packaged Airconditioning Division & Refrigeration Products Division REGISTERED OFFICE Kasturi Buildings Mohan T Advani Chowk Jamshedji Tata Road Mumbai 400 020. Telephone: +91 22 6665 4000 Fax: +91 22 6665 4151 www. bluestarindia. com D H Roy Vice President – Himachal Plants D P Singh Vice President – Infrastructure Projects Division K P Sukumar Vice President – Airconditioning & Refrigeration Service Division Contents Letter from the Chairman ……………………………………………………………………………………………

Annexure to Letter from the Chairman …………………………………………………………………… Board of Directors ………………………………………………………………….. ……………………………………. Corporate Management ……………………………………………………………………………………………… Directors’ Report …………………………………………………………………………………………………………… 1 3 4 6 8

Annexure to Directors’ Report – A …………………………………………………………………………….. 12 Report of the Directors on Corporate Governance ………………………………………………. 15 Management Discussion and Analysis …………………………………………………………………….. 23 The Dynamics of Blue Star’s Growth ………………………………………………………………………… 38 Auditors’ Report …………………………………………………………………………………………………………….. 0 Balance Sheet ……………………………………………………………………………………………………………….. 44 Profit & Loss Account …………………………………………………………………………………………………… 45 Schedules to the Accounts …………………………………………………………………………………………. 46 Notes forming part of the Accounts ………………………………………………………………………… 4 Cash Flow Statement …………………………………………………………………………………………………… 74 Consolidated Auditors’ Report …………………………………………………………………………………… 76 Consolidated Balance Sheet ………………………………………………………………………………………. 78 Consolidated Profit & Loss Account …………………………………………………………………………. 79 Consolidated Schedules to the Accounts ……………………………………………………………….. 0 Notes forming part of the Consolidated Accounts ……………………………………………….. 86 Consolidated Cash Flow Statement …………………………………………………………………………. 102 Investor & Shareholder Information …………………………………………………………………………. 104 Letter from the Chairman Dear Shareholder, Blue Star’s business growth picked up moderately in 2010-11 after a year of revenue stagnation with Total Income increasing by 14% to Rs. 893 crores. That was one of the few positive developments in an extremely challenging year. The Company was impacted by a combination of adverse external factors – rising input costs that squeezed gross margin by 2. 4%; a general slowdown in commercial real estate projects leading to lower cash collections and mounting receivables on several of our electro mechanical projects; a substantial increase in borrowings and interest costs; and a higher income tax liability in spite of lower pre-tax profit.

The Annexure to this letter reveals the effect of these factors on our financial results. To be quite honest, the overall picture is not pretty. A lower dividend, while not severe, has been recommended by the Board. In line with our belief that all stakeholders should “share the

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gain; share the pain” employees , and Directors have also taken appropriate cuts in their performance incentives and commissions. The declining results are disappointing vis-a-vis the high standards we established in the past.

This comparison is somewhat deceptive because of the “high base effect” . Compared to the operating margins, return on capital employed and return on shareholders’ funds of many other “average” companies, our figures do not look too bad. We still made reasonable profits and declared a respectable dividend. I am not arguing that we should be satisfied with these results. We have set and achieved high standards in the past. We intend to reach the same standards again. But first we must understand what went wrong.

One of the important lessons of last year was that we were mistaken in expecting an acceleration of GDP growth in India and a moderation of inflation after a good monsoon. We were misled by over-optimistic economic forecasts from various sources. As the year went by, sharp increases in global commodity prices, especially key raw materials like copper, steel and oil-based products, caused a serious erosion in our gross margin. This could only be partly mitigated by raising prices. Ashok M Advani, Executive Chairman

In 2011-12, the macro-economic scene is very different from the past. Even though the Indian economy is growing, it has changed radically and become more unpredictable, volatile and complex. Markets, competition and customer expectations are now more challenging, and the Company needs to change fast enough to deal with the new realities. We should pay heed to the old dictum, “The past is no guide to the future. ” BLUE STAR LIMITED 1 Letter from the Chairman BUSINESS SEGMENTS The 3 business segments of Blue Star performed quite differently from each other.

The most severely affected was the Electro Mechanical Projects and Packaged Airconditioning Segment. Revenues grew a modest 4%, while Segment results declined 18% and Capital Employed climbed substantially by 24%. Being, by far, the largest segment accounting for 65% of total revenues, its lack-lustre performance had a big effect on overall Corporate results. The other 2 business segments performed much better. The Cooling Products Segment produced healthy revenue growth of 35% though profits increased a moderate 12% because of erosion of margins due to inflationary cost increases.

Professional Electronics and Industrial Systems also grew very well. Revenues jumped 40%, but a change in business mix allowed only a 20% profit increase. BALANCE SHEET MANAGEMENT One of Blue Star’s strengths in recent years was a focus on efficient funds management and healthy cash flow that produced good profits to reward our stakeholders and provided resources for business growth. An additional strength was a conservative approach to debt that gave us a strong balance sheet and financial stability in turbulent times.

We did not leverage these strengths in our drive to grow when economic expansion slowed down in 2008 after the financial crisis. We were aggressive in booking new business in the deteriorating environment, but could not focus enough on cash flow and control of working capital. As a result, the balance sheet reflects much higher borrowings and interest costs that have climbed disproportionately. THE WAY FORWARD It is clear that faced with a challenging business environment, there is much to be done to put the Company back on the path to profitable growth.

The plan involves immediate short-term operational measures as well as longer-term strategic and organisational issues which are needed to build and sustain our competitive strength and better meet customer expectations. The operational measures to cut costs, speed up cash collections, manage working capital more efficiently and improve manpower productivity have already begun and should start yielding results soon. But given the magnitude of the problems, it will take a concerted effort to restore a satisfactory level of operational efficiency.

The longer-term programme is part of a 3-year Strategic Plan that addresses a number of Corporate priorities. The major planks of this plan include (a) strengthening our R&D and product development capabilities, (b) building the technical and managerial skills of our engineers and managers, (c) upgrading customer support and service delivery, (d) modernising the project planning and execution process for electro mechanical projects, (e) consolidating and integrating the newly acquired businesses, (f ) increasing market penetration in fast growing segments like residential and smaller towns.

These programmes need managerial commitment and substantial resources over a sustained period to yield results. Each one is important to reinforce Blue Star’s leadership position in the long run. These are still early days and we have a long road ahead. But we will not waver because we are determined to succeed. Mumbai : June 8, 2011 Ashok M Advani Executive Chairman 2 BLUE STAR LIMITED Annexure to Letter from the Chairman BLUE STAR FINANCIAL PERFORMANCE (Rs. in crores) 2010-11 Audited Total Income Growth over Previous Year Operating Profit (PBITDA) excl.

Non-Operating Income Growth over Previous Year Profit Before Tax Growth over Previous Year Profit After Tax Growth over Previous Year Shareholders’ Funds Borrowings Capital Employed Operating Cash Flow Carry Forward Order Position Growth Over Previous Year 2892. 91 +14% 282. 67 -8% 227. 00 -18% 155. 00 -27% 573. 50 418. 38 991. 88 (79. 94) 1967. 9 +16% 2009-10 Audited 2544. 04 +1% 305. 84 +11% 276. 62 +16% 211. 49 +17% 491. 67 65. 99 557. 67 91. 08 1699. 1 +27% KEY RATIOS 2010-11 Audited Gross Margin (excl.

Non-Operating Income) Operating Margin (excl. Non-Operating Income) Return on Capital Employed Return on Shareholders’ Funds Earnings Per Share (Rs. ) Dividend Per Share (Rs. ) Capital Turnover Debt/Equity Inventory Turnover Receivables (Days Billings Outstanding) 23. 5% 9. 8% 22. 9% 27. 0% 17. 23 7. 00 2. 92 0. 73 5. 45 99 2009-10 Audited 25. 9% 12. 0% 49. 6% 43. 0% 23. 52 8. 00 4. 56 0. 13 7. 25 91 BLUE STAR LIMITED 3 Board of Directors Ashok M Advani Executive Chairman

Suneel M Advani Vice Chairman & Managing Director Suneel M Advani is a double graduate in Electrical Engineering and Economics from MIT, USA. He also holds a degree in Law from Mumbai University. He joined Blue Star in 1969 as a Management Trainee and moved up steadily by holding responsible positions before he was elevated to the position of President and Vice Chairman in 1984. He was redesignated as Vice Chairman & Managing Director in 2005. As Vice Chairman & Managing Director, he oversees the Electro Mechanical Projects Group, Corporate Communications & Marketing and Public Relations.

Suneel is also the Chairman & Managing Director of Blue Star Infotech Limited, Chairman of Blue Star Design & Engineering Limited, Blue Star Infotech (UK) Limited and Blue Star Infotech America, Inc and a Director of Blue Star Electro-Mechnical Limited. Suneel is a Member of the CII National Council, the apex governing body of CII. Besides, he is also associated with other trade associations and was the President of the Refrigeration & Airconditioning Manufacturers’ Association (RAMA). Satish Jamdar Managing Director Vir S Advani Executive Director

Ashok M Advani is an MBA from the Harvard Graduate School of Business Administration, an Electrical Engineer from MIT, USA and a B. Sc (Honours) from Mumbai University. He joined Blue Star in 1969 and held a variety of senior positions in manufacturing and finance in the Company before he took over the Company’s affairs as Chairman & Chief Executive in 1984. He was redesignated as Chairman & Managing Director in 2005 and Executive Chairman with effect from July 2009. As Executive Chairman, he oversees Corporate Strategy, Corporate Governance, Investor Relations and Corporate Social Responsibility.

Ashok is the Vice Chairman of Blue Star Infotech Limited and on the Board of Alfa Laval (India) Limited. He has been a member of the Local Advisory Board of The Chase Manhattan Bank and a past President of the Bombay Chamber of Commerce and Industry. Satish Jamdar is a Mechanical Engineering graduate from IIT Bombay and also qualified in Systems Management from NIIT and Management Studies from UK and USA. He joined Blue Star in 1996 as Vice President Manufacturing and has over 35 years of experience in manufacturing, materials management and IT projects having worked for companies such as Siemens, BPL-Sanyo and Alstom.

After joining Blue Star, Satish spearheaded the establishment of Blue Star’s modern manufacturing facilities in Dadra, Himachal and Wada. He was also responsible for corporate financial services, airconditioning and refrigeration service, international operations as well as the customised OEM business. Satish was promoted as Executive Director in 2003, Deputy Managing Director in 2007 and Managing Director in 2009. In his current appointment as Managing Director, Satish oversees the operations and support services of the Company.

Satish is also a Director of Blue Star Electro-Mechanical Limited. Vir S Advani holds a BS degree in Systems Engineering and a BA degree in Economics from the University of Pennsylvania. He has also completed a comprehensive Executive Management Programme on Leadership Development at Harvard Business School. Vir has been in the Blue Star Group for over a decade, after a 2-year working stint in New York. In 2000, he joined Blue Star Infotech, and then founded Blue Star Design & Engineering in 2003, designated as its Chief Executive Officer.

In 2007, he moved to Blue Star as Vice President – Corporate Affairs, where he made valuable contributions in a companywide profit improvement programme as well as in electro mechanical projects, in a short span of time. He was promoted as Executive Vice President in 2008; President – Corporate Affairs & Special Projects in 2009 and Executive Director in 2010. Vir is also a Director of Blue Star Design & Engineering Limited, Blue Star Electro-Mechanical Limited and J T Advani Finance Private Limited. 4 BLUE STAR LIMITED Board of Directors Shailesh Haribhakti Director

Pradeep Mallick Director Gurdeep Singh Director Suresh N Talwar Director Shailesh Haribhakti is a Fellow member of Institute of Chartered Accountants of India. He is the Managing Partner of M/s Haribhakti & Co, Chartered Accountants and Chairman of BDO Consulting Pvt Ltd. He served a three-year term on the Standards Advisory Council of the International Accounting Standards Board. Shailesh joined the Board of Blue Star in 2005. He is a Committee member of Futures & Options segment of National Stock Exchange of India and a Member of the SEBI Committee on Disclosures and Accounting Standards.

He serves as Member of Managing Committees of ASSOCHAM and IMC and Corporate Governance Committees of ASSOCHAM and CII and is the Chairman of the Global Warming Committee of IMC. He is on the Board of Directors of several listed and private companies. Pradeep Mallick is a B. Tech from IIT Madras and Diploma holder in Business Management from UK. He is also a Chartered Engineer and Fellow of the Institution of Engineering & Technology, London. Pradeep was the Managing Director of Wartsila India Limited from 1988 to 2003, prior to which he worked with several leading companies in the field of electrical power transmission and distribution.

He joined the Board of Blue Star in 2003. Pradeep is also on the Boards of several other leading companies including Automotive Stampings & Assemblies, Elantas Beck India, ESAB India, Mount Everest Mineral Water and Tube Investments of India. In addition, he is associated with Industry Associations such as CII, Bombay Chamber of Commerce & Industry and social organizations like Population First. Gurdeep Singh is a Chemical Engineering Graduate from IIT Delhi. After his graduation, he joined Hindustan Lever Limited as a Management Trainee.

He held various responsible positions in the Company before he was expatriated to Brazil as Technical Director of Unilever Detergents business. Gurdeep returned to Hindustan Lever in 1998 as Director – Human Resources , Corporate Affairs and Technology, and retired from the Company in October 2003. He joined the Board of Blue Star in 2003. He is also on the Boards of several leading companies including Halonix, Gabriel India, Everest Kanto Cylinder, Renuka do Brazil S A and Tecnova India. Suresh N Talwar is a Commerce & Law Graduate and Solicitor and Partner of M/s Talwar, Thakore & Associates, Mumbai.

Before setting up this firm in April 2007, he was the Senior Partner of Crawford Bayley & Company. He joined the Board of Blue Star in 1986. In addition to Blue Star, he is also on the Boards of several leading companies such as Merck, Larsen & Toubro, Greaves Cotton, Sandvik Asia, ESAB India, Johnson & Johnson and Uhde India, amongst others. BLUE STAR LIMITED 5 Corporate Management Directors Ashok M Advani Executive Chairman Suneel M Advani Vice Chairman & Managing Director Satish Jamdar Managing Director Vir S Advani Executive Director Presidents

Avinash Pandit President – Electro Mechanical Projects Group B Thiagarajan President – Airconditioning & Refrigeration Products Group Executive Vice Presidents J M Bhambure Executive Vice President R&D and Technology Tojo Jose Executive Vice President- Human Resources & Administration Manek Kalyaniwala Executive Vice President – Finance Arun Khorana Executive Vice President – Professional Electronics & Industrial Systems Division 6 BLUE STAR LIMITED Corporate Management Vice Presidents G Anandkumar Vice President – Plumbing Projects Division R Aravindan

Vice President – Airconditioning Projects Division (South) Sujan Chatterjee Vice President – Corporate Finance & Accounts Sumanta Chaudhuri Vice President – Electrical Projects Division R G Devnani Vice President – Thane, Wada, Dadra & Bharuch Plants C P Mukundan Menon Vice President – Room Airconditioners Division P Venkat Rao Vice President – Packaged Airconditioning Division & Refrigeration Products Division D H Roy Vice President – Himachal Plants D P Singh Vice President – Infrastructure Projects Division K P Sukumar Vice President – Airconditioning & Refrigeration Service Division

BLUE STAR LIMITED 7 Directors’ Report The Directors are pleased to present their 63rd Annual Report and the Audited Accounts for the year ended March 31, 2011. HIGHLIGHTS OF 2010-11 Total Income grew by 14% to Rs. 2892. 91 crores. Profit before Interest, Depreciation and Tax declined by 8% to Rs. 282. 67 crores from Rs. 305. 84 crores in the previous year. Earnings per share were Rs. 17. 23 (face value of Rs. 2. 00) compared to Rs. 23. 52 in the previous year. A dividend of Rs. 7. 00 per share (Rs. 8. 00 for last year) has been recommended. SUMMARISED FINANCIAL RESULTS (Rs. n crores) April 2010 – March 2011 Total Income Profit before Interest, Depreciation and Taxation Financial Expenses Depreciation Add: Profit on sale of investments Profit before Tax Taxes Profit after Tax Add: Balance brought forward Total available for appropriation Less: General Reserve Proposed Dividend Corporate Dividend Tax Balance carried forward 2892. 91 282. 67 24. 39 31. 71 0. 43 227. 00 72. 00 155. 00 213. 44 368. 44 15. 50 62. 96 10. 21 279. 77 April 2009 – March 2010 2544. 04 305. 84 8. 45 34. 73 13. 96 276. 62 65. 13 211. 49 165. 85 377. 34 80. 00 71. 95 11. 95 213. 44 DIVIDEND

The Directors have proposed a dividend of Rs. 7. 00 per equity share. The dividend will absorb Rs. 73. 17 crores including Corporate Dividend Tax. OPERATING PERFORMANCE The revenues of the Company increased by 14% for the year, primarily due to growth of 35% in the Cooling Products segment and 40% in the Professional Electronics & Industrial Systems segment. However, the revenues of the Company’s largest segment, Electro Mechanical Projects & Packaged Airconditioning Systems grew by a modest 4%, reflecting the general slowing in infrastructure growth. 8 BLUE STAR LIMITED Directors’ Report Total Income Rs. in crores) Profit before Tax / Profit after Tax (Rs. in crores) 276. 62 242. 02 2893 2524 2270 2544 174. 09 180. 29 155. 00 1607 92. 60 71. 18 238. 22 227. 00 211. 49 06-07 07-08 08-09 09-10 10-11 06-07 07-08 08-09 09-10 10-11 Operating (PBITDA) Margin Earnings per Share & Dividend per Share (Rs. ) 23. 52 20. 05 17. 23 9. 8% 7. 3% 7. 90 7. 00 7. 00 8. 00 7. 00 19. 36 12. 0% 10. 5% 10. 9% 3. 00 06-07 07-08 08-09 09-10 10-11 06-07 07-08 08-09 09-10 10-11 BLUE STAR LIMITED 9 Directors’ Report Return on Shareholders’ Funds 66. 1% Return on Capital Employed 81. 4% 49. 1% 43. 0% 33. 4% 27. 0% 32. 1% 0. 4% 49. 6% 22. 9% 06-07 07-08 08-09 09-10 10-11 06-07 07-08 08-09 09-10 10-11 Consistently high commodity prices and increase in general operating costs due to the overall inflationary conditions eroded margins and resulted in a reduction of 8% in the Profit before Interest, Depreciation and Taxation to Rs. 282. 67 crores as compared to Rs. 305. 84 crores in the previous year. FINANCIAL PERFORMANCE The Company’s financial expenses increased sharply from Rs. 8. 45 crores in the previous year to Rs. 24. 39 crores in the current year, due to a higher interest rate regime and additional borrowings.

The major slowdown in execution of several large projects, resulted in a comparatively tardy cash flow and increase in the Capital Employed in the business. As a result, the Profit before Tax for the year saw a reduction of 18% to Rs. 227. 00 crores as compared to Rs. 276. 62 crores in the previous year. The higher income tax rate rose mainly due to lower benefits for the Himachal plant. This resulted in the Profit after Tax declining by 27% from Rs. 211. 49 crores to Rs. 155. 00 crores. EXPORT & FOREIGN EXCHANGE EARNINGS Product exports revived during the year, growing by 33% to Rs. 130. crores. Foreign Exchange inflow for the year, including commission income, was Rs. 160. 3 crores as compared to Rs. 129. 4 crores for the previous year. Foreign Exchange outflow for the year was Rs. 561. 5 crores as compared to Rs. 475. 5 crores in the previous year. SUBSIDIARY COMPANY During the year, the Company made an investment of Rs. 98 crores in the acquisition of the plumbing and fire fighting business of D S Gupta Construction Pvt Ltd, through the Company’s wholly owned subsidiary, Blue Star Electro-Mechanical Limited, which was incorporated during the year. CONSOLIDATED RESULTS

The Annual Report also includes the Consolidated Financial Statements of the Company, which include the results of the Company’s wholly owned subsidiary Blue Star Electro-Mechanical Limited and its share in the results of its joint venture companies and associate company. The Consolidated Financial results for the year show a Total Income of Rs. 3009. 85 crores and a Profit after Tax of Rs. 160. 96 crores. AUDITORS M/s S R Batliboi & Associates, Chartered Accountants, retire as Auditors of the Company at the forthcoming Annual General Meeting and have given their consent for re-appointment. As required under the provisions of ection 224 of the 10 BLUE STAR LIMITED Directors’ Report Companies Act, 1956, the Company has obtained a written certificate from M/s S R Batliboi & Associates, Chartered Accountants, to the effect that their appointment, if made, would be in conformity with the limits specified in the said section. M/s ABK & Associates, Cost Accountants have been appointed as the Cost Auditor of the Company to conduct the cost audit of airconditioners manufactured by the Company for the financial year ending March 31, 2012 upon the remuneration and terms and conditions as may be mutually agreed between the Company and M/s ABK & Associates.

The observations made in the Auditors’ Report are self-explanatory and do not call for any further comments under Section 217(3) of the Companies Act, 1956. DIRECTORS’ RESPONSIBILITY STATEMENT The Directors would like to inform the members that the Audited Accounts for the financial year ended March 31, 2011 are in full conformity with the requirement of the Companies Act, 1956. These financial results have been audited by the statutory auditors M/s S R Batliboi & Associates, Chartered Accountants. The Directors further confirm that: 1) In the preparation of the Annual Accounts, the applicable accounting standards have been followed. ) The accounting policies are consistently applied and reasonable, prudent judgment and estimates are made so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profits of the Company for that period. 3) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for providing and detecting fraud and other irregularities. 4) The Directors have prepared the Annual Accounts n a going concern basis. DIRECTORS During the year, Mr Vir S Advani was appointed as Executive Director of the Company with effect from July 1, 2010. Mr Vir S Advani and Mr Shailesh Haribhakti will retire from the Board by rotation and being eligible, offer themselves for re-election. It is proposed to appoint Mr Ashok M Advani as Managing Director designated as Executive Chairman and re-appoint Mr Suneel M Advani as Managing Director designated as Vice Chairman & Managing Director at the forthcoming Annual General Meeting.

EMPLOYEES The increased level of operations and strengthening of the Company’s R&D capabilities has resulted in an increase in the number of employees from 2603 as on March 31, 2010 to 2825 as on March 31, 2011. DISCLOSURE OF PARTICULARS Information as per Section 217(1)(e) of the Companies Act, 1956, read with the rules made thereunder relating to conservation of energy, technology absorption, foreign exchange earnings and outgo are given in Annexure A forming part of this report.

Particulars of employees as required under Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended, form part of this report. However, in pursuance of Section 219(1)(b) of the Companies Act, 1956, this report is being sent to all the shareholders of the Company “excluding” the aforesaid information. The said particulars will be made available for inspection at the Registered Office of the Company. Members interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company.

A Management Discussion and Analysis Report, as required under Clause 49 of the Listing Agreement is published separately in this Annual Report. For and on behalf of the Board Ashok M Advani Mumbai, May 24, 2011 Executive Chairman 11 BLUE STAR LIMITED Annexure to Directors’ Report – A Information pursuant to Companies (Disclosure of particulars in the Report of the Board of Directors), Rules 1988. CONSERVATION OF ENERGY a) Energy conservation measures taken: The Company is committed to produce eco-friendly energy efficient products. The platform for developing new products is energy efficiency.

The Company had already implemented the energy labelling programme for room airconditioners, which was made mandatory with effect from January 2010. The Company has also developed high energy efficient chillers to meet the changing market demand. Even though energy does not constitute a major cost factor in the Company’s manufacturing facilities, during the year under review, several initiatives were undertaken to reduce energy consumption. The Company has a certified Energy-Conservation audit team, which also helps customers in identifying and addressing their energy conservation plans.

Dadra Plant • Augmented the speed of conveyor in the powder coating plant, saving about 12. 5 kl of HSD and 31000 kWh of electrical energy. • Installed high efficiency horizontal two stage air compressor, saving about 13000 kWh of electrical energy. • Modified coil water testing facility and fire hydrant testing system, saving about 1000 kl /annum. • Introduced Energy Saver on two mechanical expanders, saving about 5000 kWh. • Introduced air blow system at exit of pre-treatment of paint shop, reducing heat load on water drying oven, saving about 2000 litres of HSD. Introduced pneumatic load unload system on low pressure air compressor, saving about 5500 kWh. Wada Plant Normally, air compressors are operated for full shift. Centralized auto On/Off panel was installed to control compressor run-time effectively. It stops compressors during tea/lunch break and 10 mins before shift end and starts automatically, giving a 10% reduction in power consumption. A few shop floor lights are kept on during night-time for security purpose which contributes to non-productive power consumption. In rder to reduce it, LED lights working on inverter have been installed, keeping illumination level same with lower power consumption. Power factor plays a major role in optimum utilization of available electricity power and helps in savings on maximum demand. Since the connected load has increased, 400 KVAR real time power factor control panel with harmonics filter was installed to achieve optimum power factor. In the paint shop, frequent conveyor line stoppages were observed because of low air pressure, resulting in low productivity and higher power consumption. A 1000 litre air receiver was installed to get constant air supply.

Also, automation on conveyor to interlock conveyor operation with air pressure prevented the rejection of painted components due to low pressure air. In washroom and toilets, all the lights are on during most of the working hours. Movement sensors were installed in washrooms and toilets to save power. b) Additional investments and proposals, if any, being implemented for reduction of consumption of energy: While no major additional investments are envisaged, efforts to conserve energy would continue and new investment proposals would be considered, based on the recommendations of the Energy Management Team.

In order to improve conversion costs, the plants have undertaken many process improvement initiatives, including energy management, enhanced safety practices, value engineering and TPM. Six sigma and quality circle initiatives are actively practiced at the plants. c) Impact of measures taken: There has been a reduction in electrical and fuel consumption, improved power factor and savings in cost of production. 12 BLUE STAR LIMITED Annexure to Directors’ Report – A Energy Savings Two DG sets were used for screw chiller testing on production test bed with sanction of additional 450 KVA supply from MSEB.

Both test beds are now operated using MSEB’s grid power, thus reducing diesel consumption by 50%. Due to capacity upgradation of the new R&D lab, the capacitor bank has been upgraded, thus controlling the power factor to unity, thereby getting maximum power factor rebate in monthly electricity bills and savings of approximately Rs. 50,000 per month. RESEARCH AND DEVELOPMENT a) Specific areas in which R&D carried out by the Company: In order to meet the growing demand for latest technology products, and to compete in the market place, the Company decided to strengthen the R&D activities.

The Company set up a laboratory for testing room airconditioners, and a new test facility for air-cooled and water-cooled chillers as per the international standards. Investments have also been made to upgrade existing laboratories to meet the increasing demand. The chiller test facilities are AHRI certified, which is an accepted standard in the industry. Blue Star appointed a consultancy firm from USA to advise on the restructuring of R&D, develop robust processes and develop competency development plans.

The engagement was for a period of 12 months, which is still ongoing. Based on the recommendations and to integrate various technologies, specific cells address software, electrical and electronics controls, CFD analysis and laboratory measurement requirements. The strength of the R&D department has been increased substantially. There are Government proposals for phasing out HCFC refrigerants and extending the labelling programme to other products in the coming years. The present labelling requirements for room airconditioners will also be revised for better efficiency.

The Company has formed a team to address these requirements. During the year, a new range of room airconditioners complying to the star labelling programme was developed. The Company also extended the range of high efficiency chillers and added roof top units for export markets. A new range of AHRI certified chillers was also launched. A range of packaged units, using DC fan technology was introduced to meet the high energy efficiency requirements. The Company also developed scroll chillers and packaged units with eco-friendly refrigerants. ) Benefits derived as a result of the above R&D: The development of new products has helped the Company to remain at the top of cutting-edge technology. c) Future plan of action: The Company will continue to invest in infrastructure, additional manpower as well as restructuring and upgrading the R&D function. The Company is working towards getting a few selected products certified from international agencies and prepare to meet the legislative requirements on the energy labelling and HCFC phase-out programmes. The Company also plans to introduce new technologies for heat exchangers. ) Expenditure on R&D: (Rs. in lakhs) 2010-11 a) Capital (including Capital Work-in-Progress) b) Recurring Total Total R&D expenditure as a percentage of turnover 961. 82 1652. 94 2614. 76 0. 90% 2009-10 280. 87 688. 93 969. 80 0. 39% BLUE STAR LIMITED 13 Annexure to Directors’ Report – A TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION a) Efforts made towards technology absorption, adaptation and innovation: Efforts continued in strengthening the R&D facilities in order to provide a comprehensive range of products complying with the legislative requirements and to suit the market needs.

This also enabled widening the export opportunities, import substitution and adaptation of imported technology to suit the Indian market. Training was imparted to technical staff as an ongoing process. b) Benefits derived as a result of the above efforts: Availability of energy efficient, environment friendly airconditioning systems and equipment; wider range of products; improved quality and product designs and cost reduction were amongst the benefits derived. c) Information regarding imported technology: No technologies were imported during the past five financial years.

MAJOR ITEMS OF FOREIGN EXCHANGE EARNINGS AND OUTGO a) Activities relating to exports, initiatives taken to increase exports, development of new export markets for products and services and export plans: Discussed in detail in the ‘Management Discussion and Analysis’ Report. b) Total foreign exchange used and earned: 2010-11 Total foreign exchange used Total foreign exchange earned 56151. 61 16031. 97 (Rs. in lakhs) 2009-10 47549. 44 12942. 29 For and on behalf of the Board Ashok M Advani Mumbai: May 24, 2011 Executive Chairman 14 BLUE STAR LIMITED Report of the Directors on Corporate Governance

COMPANY’S PHILOSOPHY ON CODE OF GOVERNANCE Blue Star has consistently followed the principles of good corporate governance through transparency, accountability, fair dealings and mutual trust. A basic set of Corporate Values and Beliefs have become a way of life in the Company and each employee is responsible for strict adherence to these values. GUIDING VALUES AND BELIEFS Blue Star has clearly spelt out a set of 12 Guiding Values and Beliefs that enunciate its basic business philosophy and its responsibilities to all stakeholders: customers, shareholders, employees, business partners and society.

Ensuring high standards of corporate governance is one of the core values. CODE OF CONDUCT While we participate in a competitive and demanding market, the Blue Star Way provides a code of conduct for its employees that requires strict adherence to the Corporate Values while delivering a world-class customer experience. The Company makes conscious efforts to align employees and business partners with the Blue Star Way. CORPORATE SAFETY POLICY Blue Star’s Management firmly believes that safety of its employees and all the stakeholders associated with our project sites and manufacturing facilities is of utmost importance.

Safety is an essential and integral part of all our work activities. We believe that incidents or accidents and risk to health are preventable through the active involvement of all the stakeholders, thereby creating a safe and accident-free work place. CORPORATE SOCIAL RESPONSIBILITY The Company has chosen 3 broad areas to focus its CSR activities: 1. Energy Conservation comprising: a) Energy Efficient Products and Services b) Other Energy Conservation Measures 2. Environmental Protection 3. Community Service BOARD OF DIRECTORS

The Board consists of eight Directors – Four Wholetime and four Non-Executive. Out of the eight Directors, four are Independent Directors. One Wholetime Director was appointed with effect from July 1, 2010. BOARD MEETINGS Seven Board Meetings were held during the financial year 2010-11 i. e. on April 9, 2010; May 12, 2010; May 31, 2010; July 26, 2010; October 29, 2010; January 27, 2011 and March 15, 2011. The Company had its Annual General Meeting on July 26, 2010. BLUE STAR LIMITED 15 Report of the Directors on Corporate Governance

The particulars of Directors, their attendance and other Directorships, Memberships/Chairmanships of Committees for the financial year 2010-11 are given below: Attendance Name Category Board Mtg. 7 6 7 4 6 7 6 7 Particulars of other Directorships, Committee Memberships/Chairmanships Last Committee Committee Directorships AGM Memberships Chairmanships Yes Yes Yes Yes Yes Yes Yes Yes 2 5 1 2 13 7 5 13 2 1 Nil Nil 7 6 1 4 Nil Nil Nil Nil 3 2 Nil 5 Ashok M Advani Suneel M Advani Satish Jamdar Vir S Advani Suresh N Talwar Pradeep Mallick Gurdeep Singh Shailesh Haribhakti

Promoter Executive Promoter Executive Non-Promoter Executive Promoter Executive Independent Non-Executive Independent Non-Executive Independent Non-Executive Independent Non-Executive Note:- Alternate Directorships, Directorships in Private Companies and Memberships in Governing Councils, Chambers and other bodies are not included. Except Mr Ashok M Advani, Mr Suneel M Advani and Mr Vir S Advani who are relatives, none of the other Directors is inter se related to the other. AUDIT COMMITTEE

The Audit Committee comprises three Independent Non-Executive Directors namely Mr Suresh N Talwar, Mr Pradeep Mallick and Mr Shailesh Haribhakti, with Mr Suresh N Talwar as the Chairman. The Committee met on May 12, 2010; July 26, 2010; October 29, 2010 and January 27, 2011. The Chairman of the Audit Committee attended all four Committee Meetings. The other Members also attended all the four Committee Meetings. The gap between two meetings did not exceed four months. The Chairman of the Audit Committee was present at the last Annual General Meeting.

The terms of reference of the Committee inter alia include review of the Company’s financial reporting process and disclosure of its financial information; recommending the appointment and removal of external auditors and fixation of audit fees; review of periodical and annual financial statements, related party transactions, risk assessment and minimization procedure, adequacy of internal control systems, performance of statutory and internal auditors and adequacy of internal audit system and structure of internal audit department; looking into the reasons for substantial default in payments to depositors, shareholders, creditors etc. nd review of the appointment, removal and remuneration of Chief Internal Auditor. REMUNERATION POLICY The Executive Chairman’s, Managing Directors’ and Executive Director’s remuneration is recorded in a service agreement with the Company, the terms of which are approved by the Board of Directors and shareholders. Notice period for termination is 6 months on either side and no severance compensation is payable on termination. 16 BLUE STAR LIMITED Report of the Directors on Corporate Governance

The annual increment and commission for the Executive Chairman, Managing Directors and Executive Director and the commission for the Non-Executive Directors within the limits approved by the shareholders are determined by the Board of Directors. Since the remuneration of Directors is determined by the Board of Directors within the limits approved by the shareholders, no separate Remuneration Committee has been constituted. The Executive Chairman, Managing Directors and Executive Director are paid by way of salary, perquisites and commission based on their agreements with the Company.

Non-Executive Directors are, in addition to sitting fees, paid a commission based on the net profits of the Company, partly by way of a fixed amount and partly based on the number of Meetings attended by them. The details of amount paid/provided towards Directors’ remuneration are as follows: (Rs. in lakhs) Name Ashok M Advani Suneel M Advani Satish Jamdar Vir S Advani Suresh N Talwar Pradeep Mallick Gurdeep Singh Shailesh Haribhakti Salary 65. 40 65. 40 41. 85 19. 80 Perquisites 130. 80 104. 40 83. 70 39. 60 Commission 209. 18 209. 18 182. 96 138. 4 11. 60 12. 00 10. 00 12. 00 Sitting Fees 2. 0 2. 2 1. 4 2. 2 Total 405. 38 378. 98 308. 51 197. 84 13. 60 14. 20 11. 40 14. 20 Note: 1. Commission shown above are amounts actually paid for the year 2010-11 and hence differ from the provisions made in the accounts for the year ended March 31, 2011. 2. Mr Suresh N Talwar holds 71500 equity shares, Mr Gurdeep Singh holds 1200 equity shares and Mr Shailesh Haribhakti holds 2600 equity shares in the Company in his individual capacity and 2500 equity shares in his capacity as Karta of S V Haribhakti, HUF.

Mr Pradeep Mallick does not hold any shares in the Company. SHAREHOLDERS’ GRIEVANCE COMMITTEE The Shareholders’ Grievance Committee comprises Mr Ashok M Advani, Mr Suneel M Advani and Mr Gurdeep Singh. Mr Gurdeep Singh, who is a Non-Executive Director, is the Chairman of the Committee. The Committee met on January 27, 2011 and reviewed the status of shareholders’ grievances. The Board has authorized Mr Sangameshwar Iyer, Company Secretary, to approve the transfer of shares and attend to other related matters and has been designated as the Compliance Officer.

During the year, the Company’s Registrars received 518 letters of which 388 letters were requests for various actions such as change of address, dividend mandate, nominations, etc. , and 130 letters were complaints for non-receipt of share certificates, dividend, demat credit, etc. All requests/complaints were attended to promptly and resolved to the satisfaction of the shareholders. There were no valid transfers pending as on March 31, 2011. BLUE STAR LIMITED 17 Report of the Directors on Corporate Governance ANNUAL GENERAL MEETINGS

Financial Year 2007-08 Date July 28, 2008 Location of Meetings Jai Hind College Hall Sitaram Deora Marg (‘A’ Road), Churchgate Mumbai 400 020. -do-do Time 3. 30 pm 2008-09 2009-10 July 27, 2009 July 26, 2010 2. 30 pm 2. 30 pm Following special resolutions were passed in the previous three Annual General Meetings: Subject Commission to Non-Executive Directors & Promotion of Mr Vir S Advani as President Date of Meeting July 27, 2009 No special resolution was passed through postal ballot during the year 2010-11 and no special resolution is proposed to be passed by postal ballot.

DISCLOSURES a. The details of transactions with related parties are given in Clause 13 of the Notes Forming Part of Balance Sheet and Profit and Loss Account (Schedule N). There were no transactions with related parties, which are likely to have potential conflict with the interests of the Company at large. b. The Company has complied with the requirements of regulatory authorities on capital markets, and no penalties/ strictures have been imposed against it. c. The Company has complied with all the mandatory requirements of Clause 49 of the Listing Agreement.

However, it has not adopted the non-mandatory requirements of the said Clause. d. The Company has followed all relevant Accounting Standards while preparing the Financial Statements. As regards its subsidiary, the Company has disclosed an accounting treatment different from that prescribed by Accounting Standards as detailed in Note III. 8b of Schedule N which forms part of the Consolidated Balance Sheet and Profit and Loss Account. MEANS OF COMMUNICATION The Company published its quarterly and half yearly results in the prescribed form within the prescribed time.

The results were forthwith sent to the Stock Exchanges where shares are listed and the same was published in Economic Times and Maharashtra Times. The Financial Results were also displayed on the website of the Company www. bluestarindia. com. Official press releases are also displayed on the website. The Company did not have any meetings with the analysts/ investors during the year 2010-11. Management Discussion and Analysis forms part of the Annual Report. SHAREHOLDERS’ INFORMATION ANNUAL GENERAL MEETING Date Time Venue : July 29, 2011 : 2. 30 pm : Jai Hind College Hall 23-24, Sitaram Deora Marg (‘A’ Road) Churchgate, Mumbai 400 020. 8 BLUE STAR LIMITED Report of the Directors on Corporate Governance FINANCIAL CALENDAR (PROVISIONAL) Unaudited results for the quarter ending June 30, 2011 : July 29, 2011 Unaudited results for the quarter ending Sept 30, 2011 Unaudited results for the quarter ending Dec 31, 2011 Audited results for the year ending March 31, 2012 Date of Book Closure Dividend Payment Date : October 25, 2011 : January 27, 2012 : May 2012 : Saturday, July 16, 2011 to Saturday, July 23, 2011 : August 03, 2011 : Bombay Stock Exchange National Stock Exchange LISTING ON STOCK EXCHANGES STOCK CODE Bombay Stock Exchange – 500067 National Stock Exchange-BLUESTARCO NSDL/CDSL-ISIN-INE 472A01039 MARKET PRICE DATA (Rs. per share) Bombay Stock Exchange High 2010 April May June July August September October November December 2011 January February March 449. 75 363. 30 384. 00 328. 00 321. 00 316. 00 447. 00 363. 90 384. 50 315. 40 318. 00 315. 45 427. 75 424. 35 435. 95 464. 00 469. 70 553. 65 501. 00 471. 80 448. 00 360. 00 370. 00 392. 10 411. 00 390. 00 416. 40 439. 00 389. 00 399. 00 428. 00 424. 00 434. 95 458. 20 469. 00 524. 40 512. 00 470. 90 449. 00 362. 00 370. 00 393. 65 411. 00 407. 50 422. 5 437. 30 381. 85 398. 65 Low National Stock Exchange High Low BLUE STAR LIMITED 19 Report of the Directors on Corporate Governance PERFORMANCE – COMPARISON WITH BSE SENSEX REGISTRAR & SHARE TRANSFER AGENTS Link Intime India Pvt Ltd C-13, Kantilal Maganlal Estate Pannalal Silk Mills Compound L B S Marg, Bhandup (W) Mumbai – 400 078. Tel. : 022-25946970, Fax: 022-25946969 E-mail: rnt. [email protected] co. in SHARE TRANSFER SYSTEM The Company’s shares are traded in the Stock Exchanges in demat mode. These transfers are effected through NSDL & CDSL. Most of the transfers of shares take place in this form.

Transfer of shares in the physical form is processed and approved weekly and the certificates are returned to the shareholders within 15 days from the date of receipt, subject to documents being valid and complete in all respects. The Board has authorized Mr Sangameshwar Iyer, Company Secretary, to approve the transfer of shares. DISTRIBUTION OF SHAREHOLDING AS ON MARCH 31, 2011 No. of equity shares held No. of Shareholders Percentage of Shareholders Total No. of shares held Percentage of shares held 1 – 5000 5001 – 10000 10001 – 20000 20001 – 30000 30001 – 40000 40001 – 50000 50001 – 100000 100001 – and above TOTAL 0684 1084 588 178 62 38 70 126 22830 90. 60 4. 75 2. 58 0. 78 0. 27 0. 17 0. 30 0. 55 100. 00 7786956 3933414 4118388 2202426 1088313 868942 2494006 67443660 89936105 8. 66 4. 37 4. 58 2. 45 1. 21 0. 97 2. 77 74. 99 100. 00 20 BLUE STAR LIMITED Report of the Directors on Corporate Governance CATEGORIES OF SHAREHOLDERS AS ON MARCH 31, 2011 40. 23% 32. 40% 11. 78% 9. 25% 6. 34% DEMATERIALISATION OF SHARES & LIQUIDITY About 94% of the equity shares have been dematerialized by about 84% of the total shareholders as on March 31, 2011. The Company’s shares can be traded only in dematerialized form as per SEBI notification.

The Company has entered into agreements with NSDL & CDSL whereby shareholders have the option to dematerialize their shares with either of the Depositories. About 32. 40% of the equity shares are held by public and the shares are actively traded in BSE and NSE. PLANT LOCATIONS Blue Star Limited IInd Pokhran Road Majiwada Thane 400 601. Blue Star Limited Plot Nos. 4 & 5 GIDC Indl Estate Bharuch 392 015. Blue Star Limited Survey No. 265/2 Demni Road U. T. of Dadra & Nagar Haveli 396 193. Blue Star Limited Nahan Road Rampur Jattan Kala Amb Dist: Sirmour Himachal Pradesh 173 030.

Blue Star Limited Village Vasuri Khanivali Road Taluka: Wada Dist: Thane 421 312. COMPLIANCE OFFICER Mr Sangameshwar Iyer Company Secretary Tel: 022 6665 4040 Fax: 022 6665 4151 Email: [email protected] com ADDRESS FOR CORRESPONDENCE Blue Star Limited Kasturi Buildings, 4th floor Mohan T Advani Chowk Jamshedji Tata Road Mumbai 400 020. Declaration As provided under Clause 49 of the Listing Agreement with the Stock Exchanges, the Directors and the Senior Management Personnel have confirmed compliance with the Code of Conduct during the financial year ended March 31, 2011. For BLUE STAR LIMITED Ashok M Advani Executive Chairman

Mumbai: May 24, 2011 BLUE STAR LIMITED 21 Auditors’ Certificate To The Members of Blue Star Limited We have examined the compliance of conditions of corporate governance by Blue Star Limited (‘the Company’) for the year ended March 31, 2011, as stipulated in clause 49 of the Listing Agreement of the said Company with Stock Exchanges. The compliance of conditions of Corporate governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of Corporate Governance.

It is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion and to the best of our information and according to the explanations given to us, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement. We further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectiveness with which the management has conducted the affairs of the Company. For S R Batliboi & Associates Firm registration number: 101049W Chartered Accountants

Mumbai: May 24, 2011 per Sudhir Soni Partner Membership No. 41870 22 BLUE STAR LIMITED Management Discussion and Analysis INTRODUCTION Blue Star is India’s leading central airconditioning and commercial refrigeration company, with over six decades of experience in providing expert cooling solutions. It fulfills the cooling requirements of a large number of corporate, commercial as well as residential customers and also offers expertise in allied contracting activities such as electrical, plumbing and fire fighting services in order to provide a comprehensive solution.

Blue Star’s other businesses include marketing and maintenance of imported professional electronic and industrial systems and execution of industrial projects. BUSINESS SEGMENTS Business Segments Electro Mechanical Projects and Packaged Airconditioning Systems Cooling Products Professional Electronics and Industrial Systems In accordance with the nature of products and markets, business drivers, and competitive positioning, the lines of business of Blue Star can be segmented as follows:

ELECTRO MECHANICAL PROJECTS AND PACKAGED AIRCONDITIONING SYSTEMS This business segment covers the design, manufacturing, installation, commissioning and maintenance of central airconditioning plants, packaged/ducted systems and variable refrigerant flow (VRF) systems, as well as contracting services in electrification, plumbing and fire fighting. After-sales services such as revamp, retrofit and upgrades as well as energy management and green building services are also included in this segment.

COOLING PRODUCTS Blue Star offers a wide variety of contemporary and stylish room airconditioners for both residential as well as commercial applications. It also manufactures and markets a comprehensive range of commercial refrigeration products and cold chain equipment. PROFESSIONAL ELECTRONICS AND INDUSTRIAL SYSTEMS For over five decades, Blue Star has been the exclusive distributor in India for many internationally renowned manufacturers of professional electronic equipment and services, as well as industrial products and systems. The Company is also in the business of specialized industrial projects for the steel industry.

BLUE STAR LIMITED 23 Management Discussion and Analysis FINANCIAL HIGHLIGHTS Total Income for the year ended March 31, 2011 was Rs. 2892. 91 crores, compared to Rs. 2544. 04 crores in FY10. Profit before Tax (excluding exceptional items) declined by 13. 7% to Rs. 226. 57 crores. Net Profit at Rs. 155. 00 crores registered a decline of 26. 7% over the previous year. Earnings per share for FY11 (Face value of Rs. 2. 00) stood at Rs. 17. 23 vis-a-vis Rs. 23. 52 in the previous year. Return on Capital Employed (ROCE) declined to 22. 9% from 49. 6%, while Return on Shareholders’ Funds was 27. % compared to the previous year’s figure of 43. 0%. ACQUISITION OF D S GUPTA CONSTRUCTION PVT LTD A few years ago, Blue Star recognized the trend of customers preferring an integrated Mechanical, Electrical, Plumbing & Fire fighting (MEP) contractor rather than several independent vendors. In order to add electrical contracting capabilities, Blue Star acquired Naseer Electricals in early 2008 and began offering integrated MEP services after a successful integration and roll out of operations across the country. The plumbing and fire fighting contracting skills were being developed inhouse.

However, the Company thought it prudent to acquire these capabilities inorganically through a strategic acquisition, in order to leverage the growth opportunities available. During the year, the Company vide its wholly owned subsidiary, Blue Star Electro-Mechanical Ltd (BSEML) completed the acquisition of the plumbing and fire fighting businesses of D S Gupta Construction Private Limited, the largest independent plumbing and fire fighting contracting company in India, on a slump sale basis. The promoters of D S Gupta Construction will continue to manage the business for the foreseeable future.

D S Gupta Construction Pvt Ltd was headquartered in Mumbai with a turnover of Rs. 130 crores in FY10. Established over two decades ago, it had pan-India operations and was reputed for its quality of work and timely execution. With this acquisition, Blue Star is in a position to aggressively pursue integrated MEP business, and is also bidding for standalone plumbing and fire fighting contracting projects by crossselling its services to its existing airconditioning and electrical contracting customers. INDUSTRY STRUCTURE AND DEVELOPMENTS AIRCONDITIONING In 2010-11, the estimated total market size for airconditioning in India was around Rs. 3,100 crores. Of this, the market for central airconditioning, including central plants, packaged/ ducted systems and VRF systems was about Rs. 6100 crores, while the market for room airconditioners comprised the balance Rs. 7000 crores. During the year, the central airconditioning industry saw good growth prospects from the healthcare, education and hospitality segments. However, the commercial realestate market after a modest pick-up in the first half of the year, slowed down in the latter half. Infrastructure projects, too, have been moving slower than anticipated with adverse impact on cash flow.

The telecom industry is reeling under severe margin pressures coupled with corruption issues and has significantly cut back on expansion. While there was a modest recovery in the IT/ITES and retail segments, it may take 24 BLUE STAR LIMITED Management Discussion and Analysis a while for these segments to get into an aggressive expansion mode. On the other hand, consumer spending on room airconditioners has been on the rise and the market continues to grow rapidly. The current penetration level of airconditioners in the country is a mere 3% and according to some industry estimates, the penetration is expected to double over the next 3-4 years.

This presents significant opportunities to the players in the room airconditioners business. COMMERCIAL REFRIGERATION The commercial refrigeration segment includes a wide range of products such as cold storages, water coolers, bottled water dispensers, deep freezers, milk coolers, bottle coolers and ice cubers. The cold chain infrastructure is characterised by long and fragmented supply lines leading to high wastage. The major constraints on the development of the cold chain industry are high capital cost and electricity bills coupled with low rental revenues and inadequate availability of concessional finance.

The Ministry of Agriculture in co-ordination with CII has constituted a Task Force, comprising experts from all stakeholders and the realistic target for developing a cold chain has been mapped out. Based on the recommendation of the task force, the Government has taken a decision to set up a body called National Centre for Cold Chain Development (NCCD) to develop a seamless cold chain network to balance demand and supply issues with remunerative price to farmers and to deliver quality produce in the hands of consumers. In addition, the task force has been developing technical standards and cost norms for several cold chain components.

SEGMENT-WISE ANALYSIS The revenue and results break-up in terms of business segments were as follows: ELECTRO MECHANICAL PROJECTS AND PACKAGED AIRCONDITIONING SYSTEMS The Electro Mechanical Projects and Packaged Airconditioning business continued to be the largest segment accounting for 65% of the Company’s Total Segment Revenue. While the demand from the IT/ITES, retail and builder segments continued to be subdued, the Company received several orders from the healthcare, hospitality, education and infrastructure segments including airports and power plants.

In the central plant equipment segment, the Company offers a range of screw and scroll chillers as well as air distribution products such as air handling units and fan coil units. The year under review saw significant demand for the Company’s eco-friendly, next-generation range of screw chillers. Encouraged by the response, the Company has set up the most advanced chiller test facility in the country at its Thane plant. This facility is amongst the best in the world and has been certified by AHRI, an independent certification agency in the USA.

The initiative will result in further strengthening the Company’s reputation that its chillers are truly world-class. During the review period, the Company won orders worth Rs. 118 crores for airconditioning and plumbing of the new integrated Terminal Building (Terminal 2) of the Chhatrapati Shivaji International Airport (CSIA), Mumbai. Mumbai International BLUE STAR LIMITED 25 Management Discussion and Analysis Airport Pvt Ltd is implementing a master plan to modernize this airport as one of the best airports in the world.

The works of the new integrated Terminal Building is being split into two phases. While Blue Star was awarded the contract to aircondition the South West Pier in FY10, it won the contract to aircondition the new Integrated Terminal valued at Rs. 96 crores during the year. In addition, D S Gupta Construction Pvt Ltd, the company that Blue Star has recently acquired, was also awarded the plumbing contracting works of this new integrated Terminal Building valued at Rs. 22 crores.

The Company strengthened its foothold in the healthcare segment during the year with several prestigious orders including orders from AIIMS (All India Institute of Medical Sciences), Bhubaneswar; GMR Care Hospital, Rajam; Continental Hospital, Hyderabad; Rockland Hospital, Manesar; Shivam Hospital, Hoshiarpur; Traumatology Hospital, Srinagar and Deep Chand Bandhu Hospital, New Delhi. Several notable orders were booked from power sector majors such as NTPC, Nabinagar; BHEL, Tuticorin; Reliance Infrastructure, Butibori & Sasan; Adani, Tiroda; Lanco, Amarkantak; BGR, Kalisindh and Indu Projects, Korwa.

Other prestigious business booked by the Company during the year include orders from Godrej Eternia, Chandigarh; HCL, Noida; DLF Magnolias, Gurgaon; Volkswagen, Pune; Novotel Hotel, Pune; NIT, Rourkela; Pune Embassy; Infosys Technologies, Thiruvananthapuram and Mysore; Juniper, Bengaluru; Indiabulls, Mumbai; Ashok Leyland, Chennai; Kohinoor Elite Hotels, Mumbai; Hindustan Unilever Limited, Mumbai; JSW Steel Energy, Mumbai; ABB, Vadodara and many more.

The electrical projects business performed impressively by cross-selling its services to existing HVAC customers as well as acquiring stand-alone orders. The business mainly caters to both the commercial building market as well as the power sector. During the year under review, several high value prestigious orders were received from the power and transmission segment including orders from Madhya Pradesh Paschim Vidyut Vitran Nigam Ltd, Indore; Avantha Power, Raigarh; Reliance Infrastructure, Sasan and Samalkot; OPTCL, Bhubaneswar and APTRANSCO, Andhra Pradesh.

The business also grew significantly in the commercial buildings segment with prestigious orders from HCL, Dadri & Noida; Vinezia Mall, Noida; Novotel Hotel, Kolkata; GMR Airport, Secunderabad and Juniper Networks, Bengaluru, amongst several others. The Company also ventured into the residential segment as well as in the highway lighting segment. In the plumbing and fire fighting business, after the acquisition of D S Gupta Construction Pvt Ltd, about 250 experienced personnel were added in the Company’s subsidiary Blue Star Electro-Mechanical Limited.

Some of the notable orders under execution include Mumbai International Airport Limited; Oberoi Realty, Mumbai; Hotel Renaissance, Bengaluru; Oberoi and Trident Hotel, Hyderabad; Fortis Hospital, Delhi; Kohinoor Square Commercial, M

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